Stephen Bainbridge's Journal of Law, Religion, Politics, and Culture

06/17/2012

The Gupta Conviction

GIVEN the tortured and time-consuming deliberations that can accompany white-collar criminal charges, the jury in the Rajat Gupta case moved with breathtaking speed. Only a day after receiving instructions from the judge, they convicted Mr Gupta on four out of six counts of conspiracy and securities fraud, all linked to information gleaned from his position as a board member of Goldman Sachs that was passed on to Raj Rajaratnam, a hedge-fund manager found guilty last year of insider trading in a separate trial. ...

Much of the trial featured mind-numbing recitations of phone and trading records. Various executives explained that information heard by boards was indeed confidential, and should not be shared with the public. To this dry factual base, the prosecutors added descriptions of discussions between Mr Gupta and Mr Rajaratnam, followed by frantic, lucrative trading at Galleon. “It was too coincidental,” said a juror.

Unlike some recent insider trading cases, such as those involving expert networks, there was nothing especially novel about the Gupta case. You had a classic insider--a director--tipping information to an outsider who used it to trade. There was evidence that Gupta got the requisite personal benefit, as required by Dirks, in the form of reputational gains and, as Schumpeter observes, "the creation of a new business venture in which Mr Rajaratnam was to play an important role."

The only thing remotely out of the ordinary about the Gupta case was the extent to which it relied almost exclusively on circumstantial evidence. There really is no smoking gun. But there is no legal requirement of a smoking gun. To the contrary, as the court held in United States v. Smith, 155 F.3d 1051 (9th Cir.1998), “It is certainly not necessary that the government present a smoking gun in every insider trading prosecution.” Id. at 1069. The fact that the jury declined to convict on two counts suggests that the did a good job of understanding how to apply the concept of reasonable doubt in a circumstantial evidence case.

WSJ Law Blog has an interesting take on the question of whether Gupta should have testified:

“I think him testifying may have resulted in shorter jury deliberation and not much else,” Roland Riopelle, a white-collar-crime defense lawyer in Manhattan. (The jury deliberated for eight hours after a month-long trial — a quick verdict if ever there was one.)

At the start of the trial Mr. Riopelle was more open to the idea, but as it progressed, he said he became convinced that putting Mr. Gupta on the stand would have played to the government’s case by allowing prosecutors to rehash much of its circumstantial evidence against him during cross-examination.

“It would have almost been like another summation,” he said. “One seemed enough in this case. Why give the government two?”

Comments

GIVEN the tortured and time-consuming deliberations that can accompany white-collar criminal charges, the jury in the Rajat Gupta case moved with breathtaking speed. Only a day after receiving instructions from the judge, they convicted Mr Gupta on four out of six counts of conspiracy and securities fraud, all linked to information gleaned from his position as a board member of Goldman Sachs that was passed on to Raj Rajaratnam, a hedge-fund manager found guilty last year of insider trading in a separate trial. ...

Much of the trial featured mind-numbing recitations of phone and trading records. Various executives explained that information heard by boards was indeed confidential, and should not be shared with the public. To this dry factual base, the prosecutors added descriptions of discussions between Mr Gupta and Mr Rajaratnam, followed by frantic, lucrative trading at Galleon. “It was too coincidental,” said a juror.

Unlike some recent insider trading cases, such as those involving expert networks, there was nothing especially novel about the Gupta case. You had a classic insider--a director--tipping information to an outsider who used it to trade. There was evidence that Gupta got the requisite personal benefit, as required by Dirks, in the form of reputational gains and, as Schumpeter observes, "the creation of a new business venture in which Mr Rajaratnam was to play an important role."

The only thing remotely out of the ordinary about the Gupta case was the extent to which it relied almost exclusively on circumstantial evidence. There really is no smoking gun. But there is no legal requirement of a smoking gun. To the contrary, as the court held in United States v. Smith, 155 F.3d 1051 (9th Cir.1998), “It is certainly not necessary that the government present a smoking gun in every insider trading prosecution.” Id. at 1069. The fact that the jury declined to convict on two counts suggests that the did a good job of understanding how to apply the concept of reasonable doubt in a circumstantial evidence case.

WSJ Law Blog has an interesting take on the question of whether Gupta should have testified:

“I think him testifying may have resulted in shorter jury deliberation and not much else,” Roland Riopelle, a white-collar-crime defense lawyer in Manhattan. (The jury deliberated for eight hours after a month-long trial — a quick verdict if ever there was one.)

At the start of the trial Mr. Riopelle was more open to the idea, but as it progressed, he said he became convinced that putting Mr. Gupta on the stand would have played to the government’s case by allowing prosecutors to rehash much of its circumstantial evidence against him during cross-examination.

“It would have almost been like another summation,” he said. “One seemed enough in this case. Why give the government two?”